Duty rise fails to halt fall in rubber prices

Despite the rise in import duty, the local natural rubber market is seeing a sharp fall in prices. The price of the benchmark grade RSS-4 on Monday dropped to Rs 151 a kg, RSS-5 was Rs 143 a kg and rubber (lot) was traded at Rs 140 a kg. RSS-4  has dropped seven per cent in a week. The announcement of the rise in duty had triggered a short period of price increase; RSS-4 had edged up to Rs 162 a kg on January 4. The gap between local and domestic prices had increased to Rs 10-12 a kg; now it is Rs 4 a kg. The Bangkok market on Monday dropped to Rs 147 a kg.

In futures trading on NMCE, the January contracts maintained the same level at Rs 153 while February, March and April contracts performed slightly better on Monday.

Some traders said the sudden fall was because of a ‘strategy’ of the big players in futures trading. There was a concerted effort to drop the prices as they had sold at higher levels. Now, they are creating a selling pressure and causing the prices to drop, said James Joseph, a trader. As the duty is high and production fall has been recorded continuously for six months, local prices should be rising, but are nosediving now, he said.  

The announcement on December 20 to increase the duty had a psychological impact. The local RSS-4 prices increased to Rs 158 a kg on December 23 and later shot to Rs 162 a kg. The government had revised the duty to 20 per cent or Rs 30 a kg, whichever was lower from Rs 20 a kg earlier. This was due to the protest by the growers and the political pressure from various parties in Kerala. But the positive effect lasted only for a few days.

 Sources said the price fall was ‘natural’ as the global markets were in a depreciating mode. Demand, locally and globally, was weak due to the slowdown. Demand for rubber-based goods, specially tyres, is weak across the globe. Import is still viable since companies have advance licences for duty-free import. So, more import is likely in January-March of the current financial year. Till December 31, 264,576 tonnes were in; 30,000 tonnes are likely to be imported during January-March. So, the supply will not be affected due to fall in production locally. Hence, the drop in prices may continue, sources said.

A rise in the duty will not have much impact as the demand is weak in the domestic market, said N Radhakrishnan, former president, Cochin Rubber Merchants' Association. Instead of the duty increase, imports should be banned temporarily for three months, he said. A fall of Rs 11 a kg in a week had upset the farmers and now the market is seeing a lot of selling pressure. Local traders fear a further downward trend in prices due to this.